Crude, Rates, Higher, Profit-Taking Begins
The market is backing
off a little bit this morning as crude streaked to six-month highs on
the back of news that Iraq is refusing to allow the restart of weapons
inspections and continuing violence in Israel over the weekend. Bernstein’s
downgrade of
(
IBM |
Quote |
Chart |
News |
PowerRating) and a number of negative articles in Barron’s has
also weakened the tech sector.
This is the beginning of March expiration week, and once again, investors should
monitor option open interest in stocks where they have positions as stocks will
tend to gravitate toward strikes with unusually large open interest.
We have three March option positions to deal with this week. We are long the
AutoZone
(
AZO |
Quote |
Chart |
News |
PowerRating) March 55/65 put spread at a price of $2.125. We sold 25% of
the position at $3.00, and we are left with 75%. We are recommending a roll
(below) for 50% of the original position.
In Dynegy
(
DYN |
Quote |
Chart |
News |
PowerRating) we have the March 30/40 1:2
call ratio spread (long 1 March 30 call, short 2 March 40 calls) which we
originally executed for a $1.50 debit. Naturally, we would like to see DYN rally
as we are bullish on this sector we are holding. Should we get a nice rally in
the stock, we will look to take some money off the table.
In Wal-mart
(
WMT |
Quote |
Chart |
News |
PowerRating) we have been long the March
60 straddle at a price of $3.30. We have sold stock (thank you whoever
paid over $63.00 Friday afternoon). This effectively converts the entire
position into puts. We are turning increasingly negative on the retail sector,
and should WMT trade below $60.00 by Friday, we could see some nice profits in
this position. If not, it will result in a small loss.
Trade Updates (3/11/02)
WMT — We have sold stock against our straddles, and with the pop late
Friday and early this morning, we have gone “one to one” short stock
vs. the long call portion of our straddles.
AZO — Per Friday’s intraday Alert, we have “rolled” part of our
Autozone position into April. We bought the April 60 puts and sold the March 65
puts at even money this morning against 50% of our original position. This
leaves us long the March 55/65 put spread (25%) at $2.125 and long the April 60
puts (50%) at $2.125.
[SMH|SMH] —
We sold the April 40 puts at $.50 Friday, taking a loss of $1.6125 on the
remaining 75% of our position. (We previously took a $1.20 profit on 25% before
the SMH went nuclear.)
Current Recommendations
AutoZone (AZO) — Sell an additional 25% of the March 55/65 put spread at $4.00.
Exxon Mobil
(
XOM |
Quote |
Chart |
News |
PowerRating) — Buy an additional 25% of the July 40 calls at $3.50 or
better.
Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Buy the July 47.5/55 call spread at $2.50 (50%).
Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating) — Sell the April 40/50 call spread at $5.00 (50%).
Rolls/Adjustments
Disney
(
DIS |
Quote |
Chart |
News |
PowerRating) — Investors long the April 22.5/25 reverse collar
(long the April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%) may
want to consider the following roll: Buy the Disney April 22.5 put/April 27.5
collar (buy the April 22.5 puts, sell the April 27.5 calls) for zero. This will
“roll” you into the DIS April 25/27.5 bull call spread at a $1.15
credit.
AutoZone (AZO) — Roll 50% of the original position into April by buying the
April 60 puts (to open) and selling the March 65 puts (to close) for even money
($0.00). Hold the remaining 25% position in the March 55/65 put spread.
Recap of open trades
Long-term
Reverse Collars
(
DIS |
Quote |
Chart |
News |
PowerRating) — April 25/22.5 reverse collar (long
the April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%).
Buy-writes
(
HAL |
Quote |
Chart |
News |
PowerRating) — long the July 20 buy-write at $15.00
(50%).
Proxy buy-writes
None.
Complex Strategies
(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the March 60 straddle at $3.30
(100%). We have finished selling stock against the position and are now
“one to one” short stock vs. calls.
Short-term
Call Positions
(
AHC |
Quote |
Chart |
News |
PowerRating) — Long the May 70 calls at $3.50 (25%). Sold at $6.00 on 3/7/02.
(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the April 12.5 calls at $1.20 (50%).
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40 (25%).
(
XOM |
Quote |
Chart |
News |
PowerRating) — Long the July 40 calls at $3.00 (25%).
Call Spread Positions
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/40 1:2 call ratio spread @ $1.50.
(
SLB |
Quote |
Chart |
News |
PowerRating) — Long May 55/60 call spread at $1.50 (50%). Sold at $3.50 on 3/7/02.
(
QCOM |
Quote |
Chart |
News |
PowerRating) — Long the April 40/50 call spread at $2.50 (100%).
(
TLAB |
Quote |
Chart |
News |
PowerRating) — Long the March 17.5/22.5 call spread at $.80 credit average (50%).
Note: This spread is a result of a reverse collar roll.
Put Positions
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the April 40 puts at $2.11 average cost (75%). Liquidated at
$.50 on 3/08/02.
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Liquidated remaining April 35 puts 3/05/02
at $1.05 per alerts. Calculation of net P&L from recent put scalping
program in progress…
Put Spread Positions
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125 (75%). Sold 25% on 3/5/02
at $3.00.
Stops
None.
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- Options trading involves substantial risk and
is not suitable for all Investors.
- Also note that spread strategies involve
multiple commissions and are not risk-free. Most spreads must be done in a
margin account.
- Because of the importance of tax
considerations to all options transactions, the investor considering options
should consult with a tax advisor as to how taxes may affect the outcome of
contemplated options transactions.
- Supporting documentation for claims,
comparisons, recommendations, statistics or other technical data will be
furnished upon request. One or more of the contributors to these
commentaries may have a position in one or more of the securities mentioned.
- It is important to note that the options
strategies discussed herein are not suitable to all investors. Options are
complex investment tools and involve substantial risk. Moreover spreading
strategies do not eliminate risk and involve multiple commissions.
- Note: All individuals must have read the ODD
carefully before trading options. To obtain the document, click on the OCC
link: https://www.theocc.com/publications/risks/riskchap1.jsp